Low volatility continues to outperform high volatility. And at the same time, growth has been outperforming value. Is it possible to get low volatility and high growth from a single stock?
We have a conundrum on our hands.
Low volatility investing has gone mainstream. Low volatility funds are expected to see record inflows in 2016 as investors look for new ways to outperform the market.
The idea is that stocks that fluctuate less than the overall market tend to outperform. And it works. Low volatility stocks have managed to outperform the S&P 500 by 13% over the last five years.
Basically, what’s happening is that “risk” is no longer directly linked to reward. These days, you can invest in lower risk and lower volatility stocks and still outperform. Plus, it’s an extra benefit if you can find a few low volatility growth stocks offering dividends.
But finding high growth stocks with low volatility isn’t easy. By definition, growth stocks are generally more volatile. However, it’s not impossible. It does involve looking to some unique areas of the market. One key is that safe high growth dividend payers won’t show up on the typical value screens.
Here are the top three safe high growth stocks in the market today:
Beat the Market With Safe High Growth Stock No. 1: Bristol-Myers Squibb (NYSE: BMY)
It might be hard to see how you can expect growth from a $120 billion market cap healthcare company, but bear with me. The pharma giant is expected to see some impressive growth following 2016. A majority of its patent losses will finally be behind it and its key cancer drug, Opdivo, will move into the lung cancer market. With that, it’s expected to grow earnings by over 20% a year for the next five years.
This drug maker also has one of the lowest betas in the market, coming in at 0.5. Thus, theoretically, for every $1 that the broader market falls, shares of Bristol-Myers should only fall by 50 cents. Its 2.1% dividend yield helps protect on the downside as well. The pharma company has managed to increase its dividend payment for six straight years.
Bristol Myers is growing into a specialty pharmaceuticals company targeting cancer and immunology. An area that the FDA has shown a preference to. Plus, the FDA has been aggressively approving drugs in this market. As well, cancer drugs tend to have more pricing power. Meanwhile, Bristol Myers has been shedding underperforming units, including diabetes and wound-care.
Beat the Market With Safe High Growth Stock No. 2: Cedar Fair (NYSE: FUN)
Cedar Fair, one of the top amusement park operators in the United States, is a great stock as we head full-steam into the summer. It pays a hefty 5.6% dividend and is a low volatility play, with a beta of 0.7. But it’s the growth that’s most exciting.
How does an amusement park operator really grow when there’s limited land to accommodate a sprawling theme park? Not to mention the fact that it takes years and millions of dollars to build one. Well, the company is expected to grow earnings at 25% per year for the next half decade.
This starts with low-cost ways to revamp its current rides and parks, including introducing virtual reality for certain roller coasters. Adding a virtual reality feature for a roller coaster is much cheaper than building an entirely new coaster, and at the same time, creates a completely new experience for theme park goers to make return visits.
Beat the Market With Safe High Growth Stock No. 3: Extra Space Storage (NYSE: EXR)
Extra Space is an underrated real estate investment trust, trading at a near $12 billion market cap. Just last month, Extra Space made dividend expert Tim Plaehn’s list of dividend payers with double digit cash flow growth. It’s now booked over 20 consecutive quarters of double-digit growth in funds from operations (a cash flow measure for REITs).
Extra Space is one of the major self-storage REITs in the U.S. and was the top performing REIT in 2015 – shares are also up 40% over the last twelve months. With an expectation for Extra Space to grow earnings at an annualized rate of 27% over the next five years, there’s still plenty of upside for Extra Space.
The beauty of being in the self-storage business is that it’s a safe low-volatility play, as they can perform well in various economic environments. Its beta is just 0.8 and it pays a 2.5% dividend yield.
Extra Space was able to take advantage of the misfortune of other players in the industry during the financial crisis, consolidating and rolling up properties. Growth wise going forward, there’s still the opportunity to expand by consolidating the fragmented self-storage industry, as it has an industry leading balance sheet.
But Extra Space has also been taking advantage of the growth in technology, adapting to how customers find storage units these days. Along those lines, Extra Storage has a strong internet and digital market presence, with employees dedicated to search and email marketing, social media and digital optimization and analytics.
In the end, will growth continue to outperform value? Will low volatility remain in favor? No one knows for sure, as what’s been in favor can quickly go out of favor. The key is to find stocks that can continue to grow steadily regardless of how the market performs. Dividends help as well.
Warren Buffett once said of his investing strategy, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for 10 years.”
He’s essentially saying that he likes low volatility growth stocks, much like the ones mentioned earlier and currently comprising the “Forever Stocks” portfolio in Bret Jensen’s Blue Chip Gems. These are the stocks that will give you market outperforming gains, substantial dividends, and let you sleep easy at night no matter what the market is doing. Find out how you can build your own “Forever Stocks” portfolio like Bret and Buffett in this new timely briefing from Bret. CLICK HERE.